When Home Mortgage Interest Is Not Tax Deductible

The Tax Cuts and Jobs Act (TCJA) has imposed limitations on the home mortgage interest deduction that reduces its value for many homeowners.

By , J.D. · USC Gould School of Law

The home mortgage deduction is one of the most popular deductions in the entire U.S. tax code. It enables taxpayers who itemize to deduct from their income taxes, within limits, the interest paid on a home mortgage or mortgages taken out to buy, build, or improve a main home (or second home). However, the Tax Cuts and Jobs Act (TCJA) has imposed new limitations on this deduction that all homeowners need to understand. Specifically, the deduction is of reduced or no use to homeowners who:

  • take the standard deduction on their 1040 return, instead of itemizing
  • aren't deed holders to the property
  • don't live on the property
  • have too large a loan to claim all of as a deduction
  • have taken out a home equity loan, or
  • are filing their taxes separately from their spouse (in which case they'd have to split the deduction).

We'll discuss all of these below.

No Mortgage Interest Deduction If You Don't Itemize

The home mortgage deduction is a personal itemized deduction that you take on IRS Schedule A of your Form 1040. If you don't itemize, you get no deduction. You should itemize only if your total itemized deductions exceed the applicable standard deduction for the year. In the past, most people who owned homes itemized because their interest payments, property taxes, and other itemized deductions exceeded the standard deduction.

However, the TCJA roughly doubled the standard deduction to $12,000 for single taxpayers and $24,000 for marrieds filing jointly. As a result, far fewer taxpayers will be able to itemize—as few as 5% of taxpayers. This means far fewer will benefit from the mortgage interest deduction.

No Mortgage Interest Deduction If You Don't Own the Property

You're not allowed to claim the mortgage interest deduction for someone else's debt. You must have an ownership interest in the home to deduct interest on a home loan. This means that your name has to be on the deed or you have a written agreement with the deed holder that establishes you have an ownership interest. For example, a parent who buys a home for a child that is in the child's name alone cannot deduct mortgage interest paid on the child's behalf.

No Mortgage Interest Deduction If You Don't Live In the Home

You can deduct the interest on a home mortgage only for:

  • your main home; that is, the home where you ordinarily live most of the time, and
  • a home that you choose to treat as your second home.

If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. You must use this second home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. If you do not use the home long enough, it is considered rental property and not a second home.

Reduced Mortgage Interest Deduction If Your Mortgage Is Too Large

There is a limit on the size of a home mortgage for which interest is deductible. If you purchased your home before December 15, 2017, you may deduct mortgage interest payments on up to $1 million in loans to buy, build, or improve a main home and a second home. If you purchased your home after December 15, 2017, new limits imposed by the TCJA apply: You may deduct the interest on only $750,000 of home acquisition debt: a reduction of $250,000 from prior law. The $750,000 loan limit is scheduled to end in 2025. After then, the $1 million limit will return.

No Deduction If You Take Out a Home Equity Loan for the Wrong Reason

Before 2018, you could deduct the interest on up to $100,000 in home equity loans. You could use the money for any purpose and still get the deduction—for example, homeowners could deduct the interest on home equity loans used to pay off their credit cards or help pay for their children's college education. The TCJA eliminated this special $100,000 home equity loan deduction for 2018 through 2025.

However, the interest you pay on a home equity loan used to purchase, build, or improve your main or second home remains deductible. The loan must be secured by your main home or second home and your total loans may not exceed the cost of the home. Such a home equity loan counts towards the $750,000 or $1 million loan limit and the interest is deductible only on loans up to the limit.

Example: In January 2023, a taxpayer takes out a $500,000 mortgage to purchase a $800,000 main home. In February 2023, the taxpayer takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home. Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. If the home equity loan was for $300,000, the interest on $50,000 of the loan would not be deductible. However, if the the home equity loan was used for personal expenses, such as paying off student loans and credit cards, none of the interest on the home equity loan would be deductible.

Split Mortgage Interest Deduction If You're Married and File Taxes Separately

U.S. tax law says that the home mortgage interest deduction must be cut in half in the case of a married person filing an individual return; in other words, a married person filing separately can deduct the interest on a maximum of $375,000 for a home purchased after December 15, 2017, and $500,000 for homes purchased before that date. The purpose of the 50% reduction is to prevent married home owners who file separately from each claiming a full deduction, thereby doubling their total mortgage deduction.

If each spouse's name is on the mortgage and each pays half the interest, they'll each get 50% of the mortgage interest deduction on their separate return. In this event, there might not be much difference in their total tax liability than if they had filed jointly.

However, if only one spouse's name is on the mortgage, the 50% reduction can be brutal. This is because the spouse who is not on the mortgage gets no deduction, while the spouse whose name is on the mortgage gets only a 50% deduction. Such a couple would be better off staying unmarried because the 50% reduction in the mortgage interest deduction applies only to married people who choose to file separately, not singles who must file that way.

More Information on Deducting Home Mortgage Interest

For more on this subject, see Deducting Mortgage and Other Interest. Also, IRS Publication 936, Home Mortgage Interest Deduction provides extensive information on this topic.

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